BUSINESS

A FAILING GRADE

BRENDA DALGLISH October 28 1991
BUSINESS

A FAILING GRADE

BRENDA DALGLISH October 28 1991

A FAILING GRADE

BUSINESS

Donald Thain has little trouble reeling off a list of staggering blunders by the managers of some of Canada’s largest corporations. Among the most embarrassing examples cited by Thain, who has been a professor at the University of Western Ontario’s school of business administration in London since 1957:

• Hamilton-based Dofasco Inc.’s $700-million purchase of Algoma Steel Corp. Ltd. in 1988, an investment that it was forced to write off within three years;

• Giant BCE Inc. of Montreal’s diversification beyond its core telephone industry into real estate, financial services and pipelines, only to discover that few of the new businesses were

as profitable as communications and that some of them were huge money-losers;

• Robert Campeau’s disastrous foray into U.S. retailing in the 1980s, which subsequently destroyed his Canadian real estate empire as his company’s prime properties were sold off at bargain-basement prices to pay off the multibillion-dollar debts that he incurred.

Those blunders, Thain said in an interview, are only the most flagrant examples of widespread bad management in Canada. “Canadian managers have made so many major mistakes, especially in the past five or 10 years,” he said. “The governance of Canadian corporations is pretty close to a disaster.”

Canadian managers, who often blame labor,

A NEW STUDY ON COMPETITIVENESS FOCUSES BLAME FOR CANADA’S ECONOMIC ILLS ON MANAGEMENT foreign competitors and government for their problems, are about to get their own wrists slapped for bad management by an influential U.S. academic. Michael Porter, a professor at Harvard University’s business school in Cambridge, Mass., comes down hard on Canadian managers in a report on Canada’s competitiveness to be made public on Oct. 24. Porter, an adviser on international competitiveness to former U.S. president Ronald Reagan, reached his conclusions after studying Canada’s competitive position in world markets. According to a small number of businessmen and academics who have read advance copies of Porter’s study, he blames Canadian managers, among others, for much of Canada’s eroding ability to compete. For their part, many leading Canadian executives concede that they must shoulder at least some of the responsibility for the erosion. “We have operated under the delusion that we were all right, Jack,” said Frederick Telmer, chairman of Hamilton-based steel manufacturer Stelco Inc., in an interview. “Now, we have to play catch-up.”

Porter’s report, commissioned by the Business Council on National Issues, whose members include the chief executives of 160 large corporations, is the latest in a series of studies that have given poor ratings to Canadian managers. Earlier this year, the World Competitiveness Report, prepared by the Swiss-based World Economic Forum, reduced Canada’s ranking to fifth place from fourth overall in its annual competitiveness ranking of 24 industrialized countries. The report ranked Canada fifth in terms of skilled labor, but 11th in management capability, behind Japan and the United States. Some economists wam of dire consequences unless Canadian managers improve. Said Thain: “We are losing our way of life in a war without bullets.”

In a series of interviews with managers, academics and management consultants, the conduct of employee relations is one area where Canadian managers consistently receive poor marks. While high-ranking executives often say that their employees are their company’s most important asset, many recent studies conclude that Canadian managers fail to involve their employees in substantial decisions and that companies’ profits are suffering as a result. Said economic consultant Nuala Beck, president of Nuala Beck & Associates Inc. in Toronto: “Too often, companies manage their workers as if they are liabilities that cost money, instead of assets that produce profits.” Charles McMillan, a management professor at York University in Toronto, said that Canadian managers treat their employees like obstacles when they should be asking them to help improve productivity. As a result, he added, Canadian firms are wasting a valuable resource that their Japanese competitors, among others, have harnessed. Declared McMillan: “Toyota gets three million suggestions from its workers every year, and it acts on 90 per cent of them.” Some high-ranking executives acknowledge that the analysts’ criticisms ring true. “In the past, there has not been high regard for what you can gain just by listening to the lower levels,” said Isadore (Issy) Sharp, chairman of the Toronto-based Four Seasons Hotels Inc. “It’s the combined thought of people in a company that are going to keep it competitive, not just the top executives.”

Although many Canadian business leaders agree that they must pay more attention to their employees, they still invest substantially less of their earnings in training programs than their Japanese and German competitors. Academics say that that stingy attitude is hurting productivity. Said Lester Thurow, dean of the school of management at the Massachusetts Institute of Technology in Cambridge, in a speech delivered to Canadian business executives this summer: “The Japanese get more flexibility out of their so-called flexible manufacturing stations than we do in North America, even when we have the identical pieces of equipment, because their employees are more skilled at using the equipment.”

Thurow added that the gaps in education between North American and Japanese workers are most acute at the lower levels of the corporate ladder. He claimed that while the top 25 per cent of Canadian students are well educated, the rest of the population has fallen far behind. “Look at the bottom half of a Japanese high-school class,” he said. “There’s nothing in Canada that can come close.” Thurow said that 93 per cent of all Japanese high-school students graduate, and all of those graduates have taken at least one calculus course. In Canada, only 70 per cent graduate, and less than one per cent take calculus.

But although Canadian workers have less formal education than their Japanese counterparts, experts say that good managers can overcome that gap. McMillan, for one, said that workers at recently opened Japanese-owned auto plants in Canada, such as the Honda Canada Inc. factory in Alliston, Ont., and the Toyota Canada Inc. plant in Cambridge, Ont., have quickly become just as productive as their Japanese workers. Said McMillan: “The Japanese have taken Canadian workers and turned out products that are the equal of anything in Japan. It proves that employee-management relations are a fundamental issue.”

Still, Canadian labor leaders complain that many Canadian executives fail to consult workers in their own plants and show little real interest in working together with unions to set business goals. Nancy Riche, executive vicepresident of the Canadian Labor Congress in Ottawa, said that she doubts managers will seriously negotiate with labor leaders as long as Canada’s unemployment rate remains high and there is plenty of cheap labor. Added Riche: “We have a class society in this country. It’s one of the reasons why unions have not been invited to sit down with managers and look at questions of competitiveness and productivity. They are seen as lower-class.”

For their part, many managers say that workers will also have to make sacrifices in order to improve relations between the two sides. Stelco’s Telmer, who had to shut down his company’s mills during a 100-day strike by the United Steelworkers of America last year,

says that union leaders must agree to tie some of their members’ compensation packages to company profits. “People have to have a stake in their business,” he said. Telmer warned that Canadian companies will have to thin both their management and union ranks in order to remain internationally competitive. He said that the cost-cutting “rationalization process” prompted by the recession is “by no means finished.” Indeed, Beck and other management consultants predict that the widespread layoffs of middle managers in recent years will likely

continue. Said Beck: “You don’t want to bog your knowledge workers down with layers and layers of management.”

When asked, many business leaders offer a different view of Canadian management’s greatest weaknesses. Jim Pattison, chairman of the Jim Pattison Group of Vancouver, for one, said in an interview that Canadian managers need to work harder and be tougher with their employees. “We tend to be too complacent and we don’t make the hard decisions fast enough,” he said. “Canadian companies tend to be maybe more paternalistic than American management. They tend to struggle longer with people who aren’t performing.”

Pattison added that both Canadian and U.S. managers are less hardworking than their Japanese counterparts. He said that on a trip to Japan, where he visited the top executives of Toyota, he found that the executives worked steadily all weekend. When Pattison returned home, he tried to contact the head of a major U.S. company that he says is losing “big, big, big money.” But, although it was Wednesday afternoon, the executive was out golfing.

Still, that type of complacency appears to be fading. “It starts with a realization that the company will cease to exist” if tough choices aren’t made, said Thain. “When people are dumb and lazy, it seems they need a crisis to make them confront the problem.” But with the Porter report adding to evidence that Canada’s ability to compete is on the decline, managers will find it increasingly difficult to put off making those hard decisions.

BRENDA DALGLISH

with

PATRICIA CHISHOLM

in Toronto